Apple upbeat on iPhone SE demand but some Asian retailers, suppliers less cheery

The company's revenue from the region, which includes Hong Kong and Taiwan, dropped 26% in the March quarter, making it the weakest region in the world.Reuters | April 27, 2016, 20:53 IST

After announcing its first-ever drop in iPhone sales on Tuesday, Apple Inc sought to reassure investors by saying its latest and cheapest model was in strong demand after being launched in late March. Some retailers and suppliers in Asia aren't so sure.

In a Reuters survey of 10 retailers in Hong Kong, Beijing, Shanghai and Shenzhen, seven - including four Apple Stores - reported solid early demand, but three third-party retailers said sales were weak.

Two suppliers of components for Apple phones, including the new iPhone SE, said they were seeing lower orders.

"I've been dealing with iPhones for five to six years now. This current quarter for Apple feels weak," said an executive at a Taiwan-based company whose components are used in iPhones including the SE model, which markets for $399.

"Our current shipment situation for Apple is not like the last two years. There are more iPhone models, but the total volume of iPhones is falling."

Such a mixed outlook from Greater China, its most important market after the United States and generator of a quarter of the company's revenue, could be a major cause of concern for Apple.

The company's revenue from the region, which includes Hong Kong and Taiwan, dropped 26% in the March quarter, making it the weakest region in the world.

Apple did not respond to requests for comment on the Reuters survey.

Still popular

"iPhone is still popular but sales have dropped because... there's no new model and the SE is similar to 5C. So it doesn't sell well," said Zhu You Peng, a salesman at Apple product reseller Xiongyu in Shenzhen. The 5C was Apple's last attempt to produce a cheaper phone, back in 2013.

Zhu said it sold around 300 iPhones per month last year but the number has dropped to around 100-200 this year.

That view contrasts with upbeat comments about the phone from Apple's Chief Financial Officer Luca Maestri on Tuesday.

"The situation right now around the world is that we are supply-constrained," he told Reuters, referring to the iPhone SE. "The demand has been very, very strong."

The iPhone SEs are sold out in Apple's own stores in mainland China and customers have to wait about three weeks to get the product delivered by Apple, according to Apple's websites. The size of the original supplies to the stores is unclear.

Apple, whose shares dropped about 8 percent after it reported the disappointing first-quarter results on Tuesday, is under pressure to show that the decline in iPhone sales represents just a hiccup, rather than a permanent shift for the product that fueled its meteoric rise.

It isn't the only challenge facing the U.S. technology giant. Its mobile entertainment services were blocked online in China earlier this month just at a time when it wants to grow services business as potential source of revenue against tapering iPhone sales. The New York Times reported that a state regulator had demanded Apple halt the services.

The new phone was seen as an important offsetting influence in subsequent periods until Apple launches its iPhone 7 - widely expected around September. The lower price point was part of a strategy to compete against Asian rivals in emerging markets such as China.

At the iPhone SE product launch in March, Apple vice president of iPhone Product Marketing Greg Joswiak singled out China as a target market, saying four-inch displays like that on the iPhone SE were still popular with first-time smartphone buyers. Apple's mainstream iPhone 6 and iPhone 6 Plus have 4.7-inch and 5.5-inch screens.

Suppliers are not upbeat

Another supplier said iPhone orders will be lower in the second quarter and second half of this year. It also provides a component for the SE model.

"Our customer is aiming for a higher target, but we are more conservative on that," the person said, referring to Apple.

That adds to concern that Apple may further lose momentum in China, where slowing economic growth may prompt more consumers to snap up cheaper phones.

"Local brands are taking up more sales, especially among low income people who earn less than 3,000 yuan a month. OPPO, Vivo phones that cost around 1,000-2,000 yuan sells the best among them," said Zhu at Xiongyu.

Aided by strong market share gain in China, Chinese smartphone vendors shipped more smartphones globally than Apple and Samsung Electronics Co combined had supplied for the first time in the first quarter, according to research firm TrendForce.

Underscoring the surging growth for Chinese vendors, Huawei Technologies Co Ltd, third-largest after Samsung and Apple, reported earlier this month a 62 percent growth in global smartphone shipments in the first quarter.

"Consumers who want to show they are rich enough, they will buy an iPhone... those who want to use something different, they will choose Samsung," Joonsuh Kim, chief design officer of Huawei's consumer business group, told Reuters, referring to consumers in China.

"But these days consumers are not that old fashioned. They are getting much smarter, and this is why we have much chance," said the former Samsung mobile design director.